April 2011 Newsletter
2011 Tax Deadline
Just a reminder, you have to file your taxes by April 30, 2011.
U.S. Outlook
The rating agency S&P 500 issued a warning Monday, April 18, 2011 on US government debt. It said that there is a 33% chance it would lower the United States credit rating from AAA in the next two years if Washington failed to manage the country's debt.
This sent the Dow Jones, S&P500 and the TSX lower.
S&P said it has little confidence that the White House and Congress will agree on a deficit-reduction plan before the fall 2012 elections. By that time, the measures won't go into effect until the fiscal year 2014.
This does not look good for the U.S. The ratings done by the three major ratings agency is very important and the AAA rating is one most sought after rating by both investors and debt issuers.
The reason this is important is because most big pension funds, hedge funds and mutual funds have in their mandate to only buy "AAA" rated bonds. If the U.S. loses its "AAA" rating, that means these fund companies will have to sell all their bond holdings which amounts to billions of dollars. This will immediately crash the U.S. bond market and who knows which other countries will be affected by this.
This has been pretty much my concern over the last year. While the U.S. stock market recovery has been very good and a lot of U.S. corporations have been reporting record earnings, the problem still lies with the U.S. government.
Even if the company does well, a major news that affects the U.S. market like this one will eventually affect the individual companies.
In short, investors are still jittery about the U.S. recovery. They know that the U.S. has been printing money recklessly and that is never a sustainable way to improve an economy.
Now what?
So where do we go from here? Depending on how bad the market reacts to this news. It may be a good time to start moving some money into the U.S. again. It's always better to buy when the market goes down, as long as the fundamentals are strong (strong US company balance sheets).
If the U.S. rating does get cut, the U.S. dollar could also fall hard. This may send gold prices up.
These are of course just speculation on my part and is not meant as investment advice. It is just my way of thinking as a learning process about economic history.
What is currently happening may or may not affect you and your investment situation should be assessed individually according to your investor profile.
Just a reminder, you have to file your taxes by April 30, 2011.
U.S. Outlook
The rating agency S&P 500 issued a warning Monday, April 18, 2011 on US government debt. It said that there is a 33% chance it would lower the United States credit rating from AAA in the next two years if Washington failed to manage the country's debt.
This sent the Dow Jones, S&P500 and the TSX lower.
S&P said it has little confidence that the White House and Congress will agree on a deficit-reduction plan before the fall 2012 elections. By that time, the measures won't go into effect until the fiscal year 2014.
This does not look good for the U.S. The ratings done by the three major ratings agency is very important and the AAA rating is one most sought after rating by both investors and debt issuers.
The reason this is important is because most big pension funds, hedge funds and mutual funds have in their mandate to only buy "AAA" rated bonds. If the U.S. loses its "AAA" rating, that means these fund companies will have to sell all their bond holdings which amounts to billions of dollars. This will immediately crash the U.S. bond market and who knows which other countries will be affected by this.
This has been pretty much my concern over the last year. While the U.S. stock market recovery has been very good and a lot of U.S. corporations have been reporting record earnings, the problem still lies with the U.S. government.
Even if the company does well, a major news that affects the U.S. market like this one will eventually affect the individual companies.
In short, investors are still jittery about the U.S. recovery. They know that the U.S. has been printing money recklessly and that is never a sustainable way to improve an economy.
Now what?
So where do we go from here? Depending on how bad the market reacts to this news. It may be a good time to start moving some money into the U.S. again. It's always better to buy when the market goes down, as long as the fundamentals are strong (strong US company balance sheets).
If the U.S. rating does get cut, the U.S. dollar could also fall hard. This may send gold prices up.
These are of course just speculation on my part and is not meant as investment advice. It is just my way of thinking as a learning process about economic history.
What is currently happening may or may not affect you and your investment situation should be assessed individually according to your investor profile.
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